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Otelco Reports Second Quarter 2013 Results

Otelco Inc. (NASDAQ: OTEL), a wireline telecommunications services provider in Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont and West Virginia, today announced results for its second quarter ended June 30, 2013. Key highlights for Otelco include:

Total revenues of $19.7 million for second quarter 2013.

Operating income of $5.1 million for second quarter 2013.

Adjusted EBITDA (as defined below) of $8.4 million for second quarter 2013.

“Second quarter 2013 results produced Adjusted EBITDA of $8.4 million and featured an improvement of 1.1% in our Adjusted EBITDA margin when compared to the first quarter,” said Mike Weaver, President and Chief Executive Officer of Otelco. “This quarter, we invested $0.8 million in capital equipment and expect to increase our capital expenditures over the course of the year for a total investment of approximately $7.0 million for 2013.

“We emerged from bankruptcy on May 24 and our new Class A shares began trading on the NASDAQ Global Market on the next trading day under our new symbol OTEL,” added Weaver. “As part of our reorganization plan, we reduced the outstanding balance on the senior debt by $28.7 million, refinancing the balance of $133.3 million through a new maturity date of April 30, 2016. In addition to the renewal of the senior debt, we have a $5 million revolving line of credit. The 13% senior subordinated notes were cancelled and exchanged for shares of our new Class A common stock. The payment on the senior debt and the cancellation of the senior subordinated notes resulted in a 50.6% reduction in total debt from $271.0 million to $133.3 million.

“After the principal payment on the senior debt and reflecting payment of the reorganization and loan cost fees associated with the restructuring transaction, we ended the quarter with $11.1 million in cash on hand. We are pleased the restructuring process has been completed and believe the 50% reduction in debt and corresponding lower interest cost makes us a stronger company,” Weaver concluded.

Second Quarter 2013 Financial Summary

(Dollars in thousands, except per share amounts)

(Unaudited)

Three Months Ended June 30,

Change

2012

2013

Amount

Percent

Revenues

$

24,714

$

19,666

$

(5,048

)

(20.4

)

%

Operating income (loss)

$

(148,061

)

$

5,121

$

153,182

*

Interest expense

$

(5,655

)

$

(2,225

)

$

(3,430

)

(60.7

)

%

Net income (loss) available to stockholders

$

(128,011

)

$

109,648

$

237,659

*

Basic net income (loss) per share

$

(48.41

)

$

38.78

$

87.19

*

Adjusted EBITDA (a)

$

10,814

$

8,449

$

(2,365

)

(21.9

)

%

Capital expenditures

$

1,242

$

783

$

(459

)

(37.0

)

%

* Not a meaningful calculation

Six Months Ended June 30,

Change

2012

2013

Amount

Percent

Revenues

$

50,088

$

40,654

$

(9,434

)

(18.8

)

%

Operating income (loss)

$

(141,444

)

$

10,009

$

151,453

*

Interest expense

$

(11,488

)

$

(7,779

)

$

(3,709

)

(32.3

)

%

Net income (loss) available to stockholders

$

(127,192

)

$

107,874

$

235,066

*

Basic net income (loss) per share

$

(48.10

)

$

39.43

$

87.53

*

Adjusted EBITDA (a)

$

22,290

$

17,235

$

(5,055

)

(22.7

)

%

Capital expenditures

$

2,545

$

1,582

$

(963

)

(37.8

)

%

* Not a meaningful calculation

Reconciliation of Adjusted EBITDA to Net Income (Loss)

Three Months Ended June 30,

Six Months Ended June 30,

2012

2013

2012

2013

Net income (loss)

$

(128,011

)

$

109,648

$

(127,192

)

$

107,874

Add: Depreciation

2,747

2,389

5,475

4,769

Interest expense - net of premium

5,313

1,991

10,804

7,204

Interest expense - amortize loan cost

342

233

684

575

Income tax expense (benefit)

(25,713

)

4,942

(25,189

)

4,871

Change in fair value of derivatives

-

-

(241

)

-

Loan fees

19

14

38

32

Amortization - intangibles

3,136

908

4,930

2,093

Goodwill impairment

143,998

-

143,998

-

Impairment of long-lived assets

8,622

-

8,622

-

IXC tariff dispute settlement

-

-

-

69

Cancellation of debt

-

(114,210

)

-

(114,210

)

Restructuring expense

361

2,534

361

3,958

Adjusted EBITDA (a)

$

10,814

$

8,449

$

22,290

$

17,235

(a) Adjusted EBITDA is defined as consolidated net income (loss) plus interest expense, depreciation and amortization, income taxes and certain non-recurring fees, expenses or charges and other non-cash charges reducing or increasing consolidated net income. Adjusted EBITDA is not a measure calculated in accordance with generally acceptable accounting principles (GAAP). While providing useful information, Adjusted EBITDA should not be considered in isolation or as a substitute for consolidated statement of operations or consolidated statement of cash flows data prepared in accordance with GAAP. The Company believes Adjusted EBITDA is useful as a tool to analyze the Company on the basis of operating performance and leverage. The definition of Adjusted EBITDA corresponds to the definition of Adjusted EBITDA in the Company’s credit facility and certain of the covenants contained therein. The Company’s presentation of Adjusted EBITDA may not be comparable to similarly titled measures used by other companies.

Total revenues of $19.7 million decreased 20.4% in the three months ended June 30, 2013, when compared to the three months ended June 30, 2012. The expiration of the Time Warner Cable (“TWC”) contract at the end of 2012 was the primary reason for the decrease in 2013, accounting for 55% of the total revenue decline.

Three Months Ended June 30,

Change

2012

2013

Amount

Percent

(dollars in thousands)

Local services

$

11,419

$

8,045

$

(3,374

)

(29.5

)%

Network access

7,498

5,764

(1,734

)

(23.1

)

Cable television

794

746

(48

)

(6.0

)

Internet

3,687

3,665

(22

)

(0.6

)

Transport services

1,316

1,446

130

9.9

Total

$

24,714

$

19,666

$

(5,048

)

(20.4

)

Local services revenue decreased 29.5% in the second quarter of 2013 to $8.0 million from $11.4 million in the second quarter ended June 30, 2012. TWC revenue decreased $2.8 million and the decline in RLEC voice access lines, including reductions in intrastate calling revenue associated with the FCC’s InterCarrier Compensation order, decreased $1.1 million. These declines were partially offset by $0.5 million in one-time settlements. Network access revenue decreased 23.1% in the second quarter of 2013 to $5.8 million from $7.5 million in the quarter ended June 30, 2012. TWC related access revenue declined $0.9 million. End user related access revenue, net of payments from the new Connect America Fund, decreased $0.8 million, reflecting reduced subscriber usage and lower intrastate calling revenue associated with the FCC’s InterCarrier Compensation order. Cable television revenue in the three months ended June 30, 2013 decreased 6.0% to just under $0.8 million compared to just over $0.8 million in the same period in 2012. Loss of basic cable subscribers was only partially offset by increased IPTV and security services revenue in our Alabama territory. Internet revenue for the second quarter 2013 decreased 0.6% to just under $3.7 million from just over $3.7 million in the quarter ended June 30, 2012. The decline in dial-up internet services and one-time Missouri fiber revenue in 2012 accounted for the decrease. Transport services revenue increased 9.9% to $1.4 million in the three months ended June 30, 2013 from $1.3 million for the three months ended June 30, 2012. The increase was associated with additional wide-area network and wholesale transport services.